Quam, the German associated arm of the international Group 3G telecommunication conglomerate, has entered insolvency amid speculation that the subsidiary folded under pressure from the financial demands of changing to the new Universal Mobile Telecommunication Services (UMTS) technology.

Quam announced on Monday that it is will cease offering its mobile phone network services in Germany and will not be taking on any new customers. The news comes only months after Spanish-Finnish Group 3G pulled the plug on Quam's UMTS license.

Telekom pays 50,000 euro for Quam recommendation

In the coming weeks, Quam's existing 200,000 customers will be advised to change to Quam's competitor, Deutsche Telekom. Telekom will pay a one-off price of 50,000 euro for the recommendation from Quam.

Customers switching to Telekom's mobile phone unit, T-Mobile International, will be offered the choice between a starting account balance of 120 euro with their new provider or a new mobile phone and 25 euro credit.

Speculation that the bankruptcy of Quam is linked to repayment costs on technology investment and the return of the UMTS license arises from the company’s failed attempt to maintain its role in the UMTS market.

Quam was one of the six official UMTS licensees in Germany approved to offer the new UMTS technology. Now it follows MobilCom, as the second German telecom to drop out of the UMTS market after Group 3G handed its license back to the state earlier this year.

Four companies left after Quam drops UMTS licence

Their departure leaves Deutsche Telekom, E-Plus and British companies Vodafone and O2 as the current holders of UMTS licenses in Germany.

All the companies involved in the development of the so-called "third generation" technology have shown signs of suffering from the huge financial burdens placed on them by development problems and the demands of the German licensing rules.

Under the licensing rules, companies are expected to have UMTS services operating and accessible to at least 25 percent of the population by the end of 2003. The immense investment and drastic changes needed to achieve this has caused widespread concern throughout the sector.

Group 3G, owned by Spain's Telefónica (57.2 per cent) and Finnish company Sonera (42.8 per cent), paid 8.5 billion euro ($8.4 billion) for its right to provide the UMTS technology in Germany. Group 3G set up Quam specifically for the purpose of supplying these services.

Cell phone networks struggling with UMTS

The Quam bankruptcy is just the latest crisis involving German companies who committed to the expensive new UMTS technology.

In September, MobilCom was bailed out from its own UMTS-induced difficulties by the German government to the tune of 400 million euro ($395 million) after France Telecom decided to withdraw from the German mobile phone operator. The crisis developed when the French group announced that it had accumulated debts of 70 billion euro. France Telecom held a 28.5 percent stake in MobilCom.

In the last few months news has also surfaced showing that Germany’s largest telecommunications provider, Deutsche Telekom, too, is suffering financial difficulties after having invested billions on the UMTS licensing fee.

And with the actual operation of the third-generation mobile phone network still a ways off, the company and its competitors are unlikely to see returns on their investment any time soon.